8 smart financial moves for the new year

8 smart financial moves for the new year

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This is the perfect time of year to take advantage of opportunities to save for retirement, cut expenses, prepare for tax breaks, increase your take-home pay, improve your credit profile, review your investments and do some financial housekeeping. These eight financial moves will prepare you for a more profitable year:

1. Make the most of tax-advantaged retirement-savings opportunities. If you got a raise, bonus or any extra money in 2017, now's the time to add more to your retirement savings--before you spend the extra cash. Increasing your contributions, even by a little bit, can make a big difference over the long run. You can invest up to $18,000 in a 401(k), 403(b), 457 or the federal employees' Thrift Savings Plan, and you can add an extra $6,000 if you're 50 or older anytime in 2017 (you don't have to wait for your birthday). You can contribute up to $5,500 to an IRA in 2017, plus an extra $1,000 catch-up contribution if you're 50 or older (and you still have until April 18, 2017, to make 2016 contributions).

If you earn an income but your spouse does not, you can contribute up to $5,500 to a spousal IRA on his or her behalf, or $6,500 if 50 or older. And if you have children of any age who have earned income from a job, they can contribute up to $5,500 to an IRA, too (you can give them the money to make the contributions). Contributing to a Roth IRA now can give them a huge head start on building tax-free savings for retirement, and they can withdraw contributions without taxes or penalties at any time.

Finally, if you have a health insurance policy with a deductible of at least $1,300 if single or $2,600 for family coverage in 2017, you can get a triple tax break by contributing to a health savings account. Contributions are tax-deductible (or pretax if through your employer) and you can use the money tax-free for medical expenses in any year, even when you're retired.

2. Gather tax records and purge your old tax files. You should be receiving your year-end brokerage and other statements soon and will get your 1099s and W-2s by the end of January. After that you can toss most monthly statements, pay stubs and receipts you don't need for tax filing if they match up with the year-end reports. Meanwhile, start gathering your tax records so you don't miss valuable deductions while scrambling to meet the tax-filing deadline in the spring.

If you're getting a refund, file your return as soon as possible so you get the money quickly and help thwart identity thieves. The IRS will begin accepting electronic returns and processing paper returns on January 23. After you file your return, you'll be able to toss some of your old tax files (the IRS generally has three years after the tax-filing deadline to initiate an audit). Keep the returns but toss (or shred) most of the supporting documents.

3. Adjust your tax withholding. Rather than wait for a big tax refund in the spring, you could get more money in each paycheck starting right away. Use a tax withholding calculator to see if you can claim more allowances on the W-4 form you submit to your employer and have less money withheld from your paychecks.

4. Refresh your estate plans. An easy but essential step is to review your beneficiaries for your life insurance, 401(k), IRAs, and other retirement plans, especially if you've gotten married, divorced, had children or experienced other life changes. Your accounts will go to the beneficiaries you designate even if you leave other instructions in your will. It's also a good time to review your will and other estate-planning documents, such as a health-care proxy.

5. Save money on insurance. It's also a good time of year to review your insurance policies, especially car and home insurance. Consider boosting your deductibles from $250 to $500 or $1,000, which can cut your rates by up to 20% and prevent you from filing small claims that could lead insurers to boost your rates or drop your coverage. Ask your insurer for a list of discounts and make sure you're getting credit for all that you deserve. Consider signing up for a data-tracking program if offered by your car insurer (such as Progressive's Snapshot, State Farm's Drive Safe & Save or Allstate's Drivewise); you plug a device into your car that sends the insurer information about your mileage and driving habits, such as hard braking and rapid acceleration. People with the lowest mileage and safest driving habits can save as much as 50%. And shop around for a better deal on your car insurance: Compare rates on the same amount of coverage at several insurers, and let your company know before you switch; it may offer to beat the quote, especially if you're a longtime customer.

6. Replenish your emergency fund. Your rainy-day fund should have at least three to six months of expenses so you don't have to raid your retirement savings or take an expensive loan if you have a leaky roof or broken-down car or you lose your job. If you've had to tap the account over the past few years, start replacing the money now.

7. Improve your credit profile. Your credit record or credit score (which is based on the information in your credit report) has a huge impact on mortgage rates, but it can also affect other areas of your finances, including your auto insurance rates in most states, car loan rates, credit-card offers, and even your ability to get a cell phone, apartment or job. You can get a free copy from each of the three credit bureaus every 12 months at AnnualCreditReport.com. Review the report, and follow the credit bureau's steps to fix any errors. Then see what you can do to improve your score. One way to boost your credit score is to keep your credit-card balances low--30% or less of your available credit--even if you pay your bill in full each month.

8. Rebalance your portfolio. If some of your investments have performed much better than others, the asset allocation you originally intended may be out of whack. Look at all of your investments and see if you need to rebalance, which many people do once a year or if their allocations stray more than five percentage points from their original plan.

Copyright 2017 The Kiplinger Washington Editors. This article was written by Kimberly Lankford, Contributing Editor and Kiplinger's Personal Finance from Kiplinger and was legally licensed through the NewsCred publisher network.